YOUNGSTOWN, Ohio – It’s almost never too early for a business to outline a succession plan, says Christopher Patrick, an attorney with Roth, Blair, Roberts, Strasfeld & Lodge in Youngstown.
“You’ll hear some people say that the day you start your business is the day you should start the succession plan,” says Patrick, whose practice areas include estate planning. “That’s a little extreme, but at the same time it has some merit… You want to start sooner than you really want to even think about it.”
Forming a business succession plan can be easy to put off for a business owner who is occupied with managing the company’s day-to-day operations.
A 2021 survey of family businesses by global accounting and consulting firm PricewaterhouseCoopers found that just 34% of respondents had a “robust, documented and communicated succession plan in place,” though most had at least an informal plan in place.
“I can’t tell you how many people I have come across that haven’t given it a thought, because they are the business. If something happened to them there’s nothing there in place,” Patrick says. “So, I don’t think you can start planning too early.”
In addition, the plan should be updated periodically. In cases when there isn’t a next-generation family member to pass the business along to, an internal successor such as a key employee who might be interested in becoming that “de facto next generation” can be identified, Patrick says.
One issue he has seen is when the business owner ignores the dynamics among the successors. He advises structuring the plan so the involved parties are treated fairly but the business can continue without being “mired in disagreement and litigation.”
Estate plans also need to account for identifying who would represent a party’s interests if that individual is incapacitated or disabled, or those of the individual’s estate if that person is deceased, he says.
Another situation Patrick points to is one in which there are children who aren’t engaged in the business’s active operation as well as those who are.
“How do you address the inequities in your plan?” he asks.
Patrick works with accountants to help develop such plans and evaluate tax consequences.